Bank capital regulation: are local or central regulators better?

Carole Haritchabalet (), Laetitia Lepetit (), Kévin Spinassou and Frank Strobel
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Carole Haritchabalet: CATT - Centre d'Analyse Théorique et de Traitement des données économiques - UPPA - Université de Pau et des Pays de l'Adour
Laetitia Lepetit: LAPE, Université de Limoges
Kévin Spinassou: LAPE, Université de Limoges

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Abstract: Using a simple two-region model where local or central regulators set bank capital requirements as risk sensitive capital or leverage ratios, we demonstrate the importance of capital requirements being set centrally when cross-region spillovers are large and local regulators suffer from substantial regulatory capture. We show that local regulators may want to surrender regulatory power only when spillover effects are large but the degree of supervisory capture is relatively small, and that bank capital regulation at central rather than local levels is more beneficial the larger the impact of systemic risk and the more asymmetric is regulatory capture at the local level.

Keywords: bank regulation; capital requirement; spillover; regulatory capture; financial architecture (search for similar items in EconPapers)
Date: 2016-01
Note: View the original document on HAL open archive server: https://univ-pau.hal.science/hal-02939054v1
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Related works:
Journal Article: Bank capital regulation: Are local or central regulators better? (2017)
Working Paper: Bank capital regulation: are local or central regulators better? (2017)
Working Paper: Bank capital regulation: are local or central regulators better? (2016)
Working Paper: Bank capital regulation: are local or central regulators better? (2015)
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